inheritance tax (week 3)

Question 1

What is an excepted estate?

Answer 1

It is excepted from the IHT 400 form

Question 2

What is the standard tax rate for inheritance tax? (what %)

Answer 2

standard tax is 40%

Question 3

when is inheritance tax charged? (what is the threshold that the £ must be over?) (what is the nil-rate band)

Answer 3

only charged on anything above the £325,000 threshold

Question 4

what are the situations when you do not need to pay inheritance tax?

Answer 4

value of estate is below the £325,000 threshold; or
anything above the threshold is left to a spouse, civil partner or a charity

Question 5

if a person owns their own home then what is the tax-free threshold? (residential nil rate band)

Answer 5

it is upped by £175,000 to £500,000 total
(if the property is left to their children, or grand children and estate is worth less than £2million

Question 6

if a person does not use up all of their tax-free allowance and they have a spouse - what can happen?

Answer 6

any of the tax free-allowance that they did not use can be transferred to their surviving spouse or civil partner to use

Question 7

what is a PET (potentially exempt transfer)?

Answer 7

it is a lifetime transfer of value to another individual. if transferor doesn’t survive for 7 years after making the transfer then this is chargeable of inheritance tax

Question 8

what is a lifetime chargeable transfer?

Answer 8

it is a transfer of value made by a person into a trust. it is chargeable when it is made and IHT is payable not the chargeable value of the LCT at the lifetime rate of 20%. if survive 7 years then no more IHT. if die, within 7 years then LCT is reassessed to tax at the death rate of 40%

Question 9

if a person makes an LCT (lifetime chargeable transfer) and survives 7 years what happens?

Answer 9

if survive 7 years then no more IHT

Question 10

if a person makes an LCT (lifetime chargeable transfer) and dies within 7 years what happens?

Answer 10

if die, within 7 years then LCT is reassessed to tax at the death rate of 40%

Question 11

is the taxable estate the same as the succession estate?

Answer 11

no it is not the same and so a separate calculation of the value of the estate for IHT purposes will be needed

Question 12

what is cumulation?

Answer 12

it is the total chargeable value of all chargeable transfers made in the previous 7 years - it reduces the NRB available for the transfer under consideration. (used to prevent individuals from reducing or avoiding IHT)

Question 13

if a person outlives multiple spouses - can they claim all of their previous spouses NRB?

Answer 13

individuals who survive multiple spouses can claim the TNRB in respect of them, subject to a cap of 100% of a full nil rate band being transferred

Question 14

what is a qualifying residential interest?

Answer 14

it is a residential property which is part of the deceased’s estate immediately before death.
where the deceased had more than one residential property interest then the PRs must nominate one of them as their QRI.

Question 15

what is a political party exemption?

Answer 15

IHT is exempt if paid to a party (but needs to have at least 2 mPs elected or at least one MP elected and at least 150,000 votes given to candidates representing that party

Question 16

what is the reduced rate for charity purposes?

Answer 16

if give money to charity then as well as being IHT exempt there is as reduced rate of IHT of 36% instead of 40% on all of the chargeable assets in the estate.
this reduction applies when a deceased leaves at least 10% of their net asset to charity

Question 17

what is the downsizing rule?

Answer 17

allows an estate to qualify for the RNRB even if the deceased didn’t own a QRI when they died, need to qualify:
- deceased must have given away their QRI or downsized to less valuable QRI on or after July 2015
- former home would have been a QRI if it had been retained
- a direct descendant inherits the replacement QRI and/or other assets

Question 18

when do the downsizing rules not apply?

Answer 18

• There is no loss of RNRB because the value of any new QRI in the estate is the same/more than the max available RNRB or
• The RNRB is not available because the new QRI or assets are not left to a direct descendant

Question 19

what is a DMC (donations mortis causa)?

Answer 19

lifetime git made condition on death. at date of death the donor no longer owns the asset as it has been given away while they are alive. however, as it is conditional it can make up part of the deceased’s estate for purposes of IHT

Question 20

what is the deadline for submitting the IHT account?

Answer 20

12 months from the end of the month in which the death occurred

Question 21

what is the deadline for paying IHT due?

Answer 21

6 months from the end of the month in which the death occurred. anything over this 6 months interest must be paid on top of the IHT.

Question 22

when can an estate not be accepted? (in what situations)

Answer 22

• The deceased made a GROB that subsists at death (or reservation ended in the 7 years prior to death and the transfer was not exempt)
• The estate includes either more than one trust or a single trust worth more than £250,000
• Foreign assets are worth more than £100,000
• Value of a specified transfer exceeds £250,000
• A claim for RNRB is being made